Five years after its $25 billion initial public offering (IPO) on the New York Stock Exchange, Chinese e-commerce giant, Alibaba Holding Limited, is considering the Hong Kong Stock Exchange for a second listing in what is said to be a record-breaking deal worth $20 billion from investors. This gives Hong Kong a second chance to land the record-breaking deal which got away 5 years ago.
Easing Rules To Attract Fast-Growing Companies With Dual Class Structures.
The deal, experts say, would signal a major victory for the Asian financial center, which, after failing to attract Alibaba in 2014, changed its stock-market rules. Exchanges from Singapore to Shanghai have rewritten their rules to attract fast-growing businesses with dual-class shares or even unproven business models, thus making the city of Hong Kong involved in an increasingly teeming battle for technology listings.
Charles Li, the Chief Executive Officer of Hong Kong Exchanges & Clearing Limited, said, “Alibaba, which has a market value of about $400 billion, has always been the biggest prize.” Charles has repeatedly stated in recent times how much he wanted the company (Alibaba) to list in the city.
It was under Li’s guard that Alibaba opted for the New York exchange, which permits dual-class structures.
Charles Li, a vocal supporter of the rule adjustments, has also eased other constraints to encourage companies in industries such as biotech to go public without proven track records or business models.
In his words, “The exchange is also exploring how dual-class share rules can be expanded so companies can hold stock with extra voting power. Under the current regime, which started in 2018, such shares can only be held by company directors, and the extra voting rights expire when the holders leave the firm.”
Impact Of Dual-Class Shares On Hong Kong’s Shares.
Although, Hong Kong’s move to allow for dual-class shares already has an impact, helping the city draw in two of last year’s hottest tech IPOs. Xiaomi Corp. and Meituan Dianping, making the companies the third- and seventh-largest debut offerings globally in 2018. Both tech companies went public in Hong Kong to much fanfare, yet their shares have since dropped.
The shares of Hong Kong Exchange (HKEX) rose as much as 3.5% on Tuesday, surpassing the benchmark Hang Seng Index’s 0.7% gain.
How Can HKEX Maintain Luring Top Companies?
One development that could help Hong Kong is the fading away of mainland initiative to launch the so-called Chinese depositary receipts (CDR), which were meant to lure tech giants like Alibaba to Shanghai. Attempts to lure Alibaba went all the way to the top of Hong Kong’s government, with Chief Executive Carrie Lam exhorting Alibaba founder, Jack Ma to consider a listing in the city.
Anil Agarwal, Analyst at Morgan Stanley, wrote on Tuesday that: “Alibaba listing would be a catalyst for further tech companies coming to Hong Kong. It would also boost overall trading as investors prefer technology stocks to old economy firms, while raising earnings per share assumptions for HKEX”.
Hong Kong’s implementation of structures that give founders unequal voting control came after years of argument, incited in large part by the loss of Alibaba. However, under the new rules for secondary listings introduced a year ago, companies can apply for an exemption to standard controls in Hong Kong that restrict governance models, but allowing certain key executives to recommend the board.
Dual-Class Shares Structures.
Dual-class shares structures refers to companies (especially technology companies) or stocks with two or more classes of shares (A shares and B shares), with different voting rights for each class. These tech companies are fond of this structure, because it allows the tech startups to access public capital without surrendering control. Companies such as Google, Alibaba, Ford, Warren Buffet’s Yorkshire Berthaway, etc. are examples.
Alibaba Group Holdings Limited.
Alibaba is a multinational Chinese conglomerate, known as the world’s fifth largest internet company by revenue. Its specialties include: retail, ecommerce, internet and technology.
Some of the firms under group are: AliExpress, Taobao, Daraz, Alibaba cloud, amongst others.